Cash for Keys Not FDCPA Violation

Cash-for-Keys Offer by Servicer Following Foreclosure Sale Not Unlawful Debt Collection Activity

The recent opinion of the U.S. Court of Appeals for the Eleventh Circuit in Prescott v. Seterus, Inc., 2015 WL 7769235 (11th Cir. December 3, 2015) has caused much consternation among servicers and their default services law firms because the decision arguably punishes debt collectors for providing consumers with a reinstatement or payoff quote that is actually useful.  While the Court appears to have applied a hyper technical interpretation of the FDCPA in Prescott, it knew where to draw the line in the recent unpublished decision in Kinlock v. Wells Fargo Bank, N.A., 2016 WL 758797 (11th Cir. February 26, 2016).

In Kinlock, following foreclosure of a residential property by Wells Fargo, one of its agents delivered a cash-for-keys letter to the former borrower (including placing a copy in his mailbox and posting it to the front door), in order to provide for an amicable turnover of the property – a practice in universal use for many years that works to the mutual benefit of the property occupant and REO purchaser.  Acting pro se, the borrower filed suit alleging these actions violated the FDCPA and Florida’s FCCPA (analogous to the federal law).  The Court, in affirming the district court’s order dismissing the complaint for failure to state a claim, provided a thoughtful explanation of how a debt collector may violate the FDCPA in its communications with the consumer, even without making a direct demand for payment.  “A demand for payment need not be express. A demand may be implicit.  An example of the latter is a letter that indicates that it is being sent to collect a debt, states the amount of the debt, describes how the debt may be paid, and provides the address to which the payment should be sent and a phone number.”  Kinlock, at *1, citing Caceres v. McCalla Raymer, LLC, 755 F.3d 1299, 1302. Turning to the FCCPA, the Court observed that using threats or force in the course of collecting a debt, and disclosing information concerning the existence of a debt known to be reasonably disputed may violate state law.  Kinlock, at *2, citing FLA. STAT. §§ 559.72(2) and (6).

The Court concluded that the complaint failed to allege any facts showing that Wells Fargo had made a demand of any sort, or that Wells Fargo was attempting to collect a consumer debt.  Cash-for-keys offers are usually at least grudgingly accepted, even by former borrowers.  This case has to be an extreme example of the saying:  “no good deed goes unpunished.”  Unfortunately, the concept is not unheard of in the world of mortgage servicing when even well-intended acts of a servicer or lender can land those parties in hot water.  In navigating the several consumer financial protection laws applicable to servicers and debt collectors, it is advisable to adhere closely to their requirements and keep track of judicial developments interpreting those laws and their associated regulations. 

Published by Hutchens Law Firm on June 15, 2016